Saturday, January 09, 2010
8:03:33 PM EDT

Networking and Shipping

by
James Brown

Why We Like It:
The consolidation in shares of CSCO is narrowing and the stock looks poised to breakout past its 2009 resistance. Shares failed near $24.85 in October 2009 and early January 2010 but this past week traders were buying the dip. If CSCO breaks out it could herald a new leg higher. I am still concerned about the risk for a market correction in January so we want to keep our positions small. I'm suggesting a trigger to buy CSCO at $25.05. If triggered our first target is $27.40, which is a little optimistic but we will plan to exit ahead of the early February earnings report.

Why We Like It:
Shipping stocks are bouncing as investor sentiment turns bullish in 2010. Long-term the shipping companies (and their stock) face a challenge as the industry faces a glut of supply as new ships come online in late 2010 and early 2011. On a short-term basis that's not going to affect DSX and shares are rebounding sharply from a six-week correction.

I'd rather buy a dip near $15.50 but I'm suggesting small positions now. This sector and this stock can be volatile. I do consider this an aggressive, higher-risk trade. We want to keep positions small. Our first target is $17.90.